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ALLA te L243 2a ~~. Tv) ree 1a Py a PY ¥ z= Bs “7 is eis ie v1 * vt ia aii re eT ee Tita Ul Oe ie Tare y iy idee | ogi’ mW 2 ¥ ‘ 3 Bef z y 


UNFAIR RAILWAY 
AGITATION 


Wherever the railways of this country 
have pushed their iron bands into the 
wilderness or across the prairies, towns and 
cities and villages have sprung up, and the 
hum of industry has followed in their wake. 
From the earliest days of our development 
until now, the railway has been the unfail- 
ing handmaiden of prosperity. Every 
shadow that has fallen across the pros- 
perity of this nation can be traced with 
absolute directness to the economic fallacy 
of some designing politician. Not one 
instance of commercial depression or indus- 
trial paralysis can be traced diréctly or 
indirectly to any voluntary act of any 
railway. 


BY 


BURTON HANSON 


GENERAL So.ricitor, Cuicaco, MILWAUKEE AND 
St. Paut Raitway Company 


UNFAIR RAILWAY AGITATION. 

A reply to the articles on railway regulation by Governor 
Robert M. la Follette published in The Saturday 
Evening Post. 


c ———— 


I. GRANGER LEGISLATION AND ITS RESULTS. 


rs 


The present sentiment against the railway manage- 
ment of the country has its foundation very largely 
in misinformation and misrepresentation. 

Even if the evils which are complained of exist as 
it is claimed they do, they are not general enough to 
produce the clamor with which Congress and the legis- 
latures of the states are assailed. The opinions of the 
great majority of those who are demanding legislation 
in restriction of the rights of railways are founded 
upon information which has been given them by 
others. The character of that information becomes, 
then, of the foremost importance in determining what 
weight should properly be attached to the demands 
of the public. If they have been grossly misled and 
materially misinformed it is fair to assume that if 
they had been correctly informed their opinions would 
be the opposite of those which they now hold. 

The articles which have been published in The Sat- 
urday Evening Post, from the pen of Governor and 
Senator-elect LaFollette of Wisconsin, afford a strik- 


2 UNFAIR, RAILWAY AGITATION, 


ing example of the unfair and misleading methods of 
the propaganda upon which the present agitation 
against railways rests. These articles are plausible 
upon their face, but they are filled with the half-truths 
that make the most dangerous form of falsehood. 
The position of The Saturday Evening Post in the 
public estimation gives the people an unusual degree 
of confidence in any statements which appear in its 
pages, and the position of Governor and Senator-elect 
LaFollette gives added weight to statements which ap- 
pear over his signature. Therefore, it seems but fair 
to the readers of these articles to discuss the correct- 
ness of the assertions made and examine the accuracy 
of the conclusions attempted. 

The manifest intent of the first article of the series, 
was to show that the Granger legislation of 1873 
worked no injury to the railroads and none to the 
commerce of the states in which it was enacted. The 
pages of history completely refute this theory, and the 
arguments put forth in its behalf establish exactly the- 
opposite of the contentions presented. 


INACCURACY OF STATISTICS. 


Before considering the effect of the statistics pre- 
sented by Governor LaF ollette upon this point, I wish 
to call the attention of his readers to the inaccuracy 
with which they were given. The use of percentages 
in such comparison is mathematically unjustifiable, 
and actually misleading. The percentage of increase 
in railway mileage has no bearing whatever upon the 
prosperity of the railways or the people. The rail- 
ways might be more prosperous, and might earn a 


A REPLY TO GOVERNOR LA FOLLETTE. 3 


higher revenue in a thickly settled country where 
there was no need for further construction, than in a 
sparsely settled and newly developing country where 
the demand for extension was large. Railways do not 
grow from seeds nor multiply from bulbs, and, there- 
fore, the relation of existing track to new construc- 
tion has no bearing upon the question of prosperity. 
New construction is regulated wholly by the demand 
for it. 

The facts are, taking the figures given in the table 
presented, that the average increase in mileage in the 
arbitrary groups into which the country is divided, for 
the period from 1873 to 1875, was as follows: 


Miles. 
Wisconsin, 206 
Four Granger States, each 222, 
Granger States, except Wisconsin, Jae 
Michigan, Missouri, Indiana and Nebraska, each 112 
Middle Atlentic States, each, 135 
Southern States, each, 39 


The construction of an average of about seventy 
miles a year in the four Granger states, during the 
years of 1873, 1874, and 1875, when those states were 
undeveloped and should have been, as they were soon 
after, rapidly developing, amounts to an absolute stag- 
nation of railway construction which completely re- 
futes the statement that the Granger legislation did 
not retard railway construction and industrial and 
agricultural development. But for this legislation 
it cannot be doubted that the increase in these states 
would have been many times larger at that period. 
The other states are so grouped that they should not 
be expected to show much development at that time. 


4 UNFAIR RATEUWAY (AGU ATO 


Nebraska had not been opened up, there was no special 
growth in Missouri during those years, Indiana was 
well supplied with railways and the portion of Michi- 
gan which was settled at that time had railways suffi- 
cient for its needs. The other groups include well 
settled portions of the country in which there was no 
special activity that demanded, in those trying times 
the venture of new enterprises. ‘The four Granger 
states were the center of agricultural and industrial 
development, and had it not been for the retarding 
influence of adverse railway legislation, they would 
have been much more rapidly developed. 


SHort Duration or WIsconsIn GRANGER Laws. 


That the relative development of Wisconsin has 
been much more rapid than any other of the four 
Granger states is amply attested by the impartial 
pages of the Federal census. This is due in part to 
the fact that the Granger legislation fell with lighter 
force upon Wisconsin than upon others. In compar- 
ing the conditions of the four states, an attempt is 
made to create the impression that this legislation was 
in force in Wisconsin two vears. It is said: ‘‘*The 
Wisconsin law was enacted in the early part of 1874, 
and repealed in 1876;’’ ‘‘H’rom the enactment of the 
law in Wisconsin until its repeal two years later;’’ 
‘‘Hrom 1873 to and including 1875, the time when the 
Wisconsin law was in force.’’ ‘Technically, these 
statements are true, but practically they are materially 
untrue. It is true that the law was enacted in the 
early part of 1874, but it did not go into operation un- 
til October of that year. The commissioners ap- 


A REPLY TO GOVERNOR LA FOLLETTE. 6 


pointed under it had no opportunity to do much more 
than get it in working order before the legislative ses- 
sion of 1875 convened, and at that session the law was 
materially amended as to the rates which might be 
charged by the companies. The amended schedules 
and classifications were put in force March 17, 1875, 
and the law was repealed in January, 1876. In fact, 
the original Granger legislation of Wisconsin was not 
actually in force more than three or four months, and 
in its amended and much less harmful form it lasted 
less than a year. Its repeal was the result of a de 
mand spontaneous and wide-spread, based on the com- 
mercial and industrial suffering which its operation 
threatened and imposed upon the people, and the as- 
sertion at this late.day that it was repealed because 
‘‘the railroads regained control of the legislature’’ is 
a gratuitous assumption. As between the control of 
the legislature by the railroads, and its subserviency 
to the imperial will of a political boss, the people have 
little choice, so far as their best interests are econ- 
eerned. Neither condition has prevailed in Wiscon- 
sin, nor have the people been seriously threatened 
with either condition, unti! this year. 


RELATION oF Gross ann Net Fiarnines to Rates. 


The figures which are furnished the readers of The 
Saturday Evening Post on the subject of gross and net 
earnings are as misleading concerning the questions 
discussed as though they were absolutely false. 
Neither gross earnings nor net earnings of themselves 
prove anything in a discussion of rate control. Of 
themselves, and without the necessary corelated data 


6 UNFAIR RAILWAY AGITATION, 


they have no bearing on the question of rates. Gross 
earnings are the product of tonnage, and net earnings 
are the product of overation, each without reference 
to rates. That is, a larger amount of tonnage at a 
lower average of rate will produce a greater gross 
revenue, than a smaller amount of tonnage at a higher 
average of rate. On the other hand, a smaller amount 
of tonnage at a lower average of rate might, under 
certain operating conditions, produce a greater net 
earning, than a larger amount of tonnage at a higher 
rate. Without the amount of tonnage on the one hand, 
or the ratio of operating expenses on the other, neither 
the gross earnings nor the net revenue afford any in- 
formation. And yet, as used in The Saturday Even- 
ing Post, they could not fail to produce the impression 
that the railways were more prosperous in the Gran- 
ger states from 1873 to 1875 than they were elsewhere. 
But even when taken in consideration with these facts, 
they do not reach the point which is contended for 
until the investment involved is applied to the net 
earnings realized, for it is clear that the larger amount 
of net earnings might in fact be the smaller return on 
the capital actually invested. It is by such methods as 
these, plausible in themselves, but grossly misleading 
in fact, that the sentiment against the railways has 
largely been created. 


WIsconsIn HARNINGS OF Sr. Paunt Rattway. 


In the second article of the series, it 1s stated that 
‘‘the net earnings of The Chicago, Milwaukee & St. 
Paul Railway Company are $1,109 per mile greater 
upon its Wisconsin mileage than for the other states 
through which its lines extend.’’ It is not possible that 


eRe tae Ly eit ay Ce)! Virb ku INCE remy eer OO) Ty Te BD DY Tee 


this statement could be true, because the data upon 
which net earnings could be computed for any one 
state through which the lines of the Chicago, Milwat- - 
kee & St. Paul Railway pass, or into which they ex. 
tend, do not exist. It is not possible to determine 
what the net earnings of that company are in any one 
of the states through which it passes. It has no net 
earnings in any one state. Its business is so largely 
interstate and so thoroughly intermingled, that the 
net result of any one state could not be computed, 
for no one state by itself produces a net re- 
sult. The Chicago, Milwaukee and:St. Paul Railway 
Company is a corporate entity, and not a commercial 
federation. Its net result is from its whole opera- 
tions. Fifty per cent. of the business which this com- 
pany does in Wisconsin is business that passes 
through the state, neither originating nor terminating 
within the borders of Wisconsin. The terminal charges 
of various sorts, none of which is capable of exact 
computation, are a considerable factor in the net earn- 
ings which this business produces. Business of this 
character certainly produces half of the revenue 
earned within the state, and it is probable that three 
quarters of the cost charged against it in the end is 
incurred outside the state. It is true that the railway 
companies render certain statements to the railroad 
commissioners of the various states concerning state 
and interstate business. These statements are ren- 
dered in compliance with the laws of the states, and 
are the figures demanded by the respective commis- 
sioners in response to the provisions of law. They 
are valueless from a statistical standpoint, and are 
not statements by which the railway companies can 


8 UNFAIR RAILWAY AGITATION. 


in any manner be bound. No railway company would 
make them of its own volition, or treat them as the 
basis of any representation whatever. While gross 
earnings can be apportioned with substantial accu- 
racy to the mileage traversed, operating expenses can- 
not be, because the actual cost of operation varies 
materially with different conditions under which the 
operation is conducted. The railroad commissioners 
of the different states, in their national association, 
have adopted a rule requiring all interstate roads to 
apportion their operating expenses for the purposes 
of their reports, on the basis of train revenue miles. 
This is done by the railways because it is required, 
but it is an inaccurate and misleading result, and 
proves nothing when taken in connection with the 
gross earnings. 

The reason that the gross earnings of the Chicago, 
Milwaukee & St. Paul Railway are larger in Wiscon- 
sin than in the other states through which it passes 
is not because the freight rates are higher in that 
state, but because its main line from Minneapolis and 
St. Paul to Chicago, its Jines from South Dakota and 
Southern Minnesota, and its lines from Northern 
Towa, pass through Wisconsin, and on its Wisconsin 
lines, on the way to its eastern terminal, all the busi- 
ness of North and South Dakota, Minnesota, and a 
considerable part of [Iowa passes through the state. 
The business from Chicago to these states also makes 
Wisconsin tonnage. This of itself accounts for the 
difference in earnings which forms the basis of this 
assertion. All this tonnage gets a haul of over 230 
miles in Wisconsin, while the average haul in the en- 
tire state is but 97 miles, so that it is not difficult to 


Aree + OG Von RN One ThA FOE Eek DT tug 


see the effect which this business has on the result. 
The earnings from this large tonnage which merely 
passes through the state and which were used to swell 
the figures given as for Wisconsin, have no relation to 
the freight rates in that state. No part of such earn- 
ings is paid by the people of Wisconsin, and they are 
no more concerned about these earnings than they are 
with the passing breeze. The conclusion of Governor 
LaF ollette that because the earnings in Wisconsin are 
larger, the freight rates are necessarily higher, is a 
non sequitur. It has been demonstrated time and 
again that the freight rates in Wisconsin are not only 
not higher than they are in the neighboring states, but 
that they are better adjusted to meet the commercial 
needs of the state. 


Postt1on oF PEOPLE or Wisconsin on RatLway QuvuEs- 
TION. 


It is stated that ‘‘If any question can be definitely 
settled at the polls, the people of Wisconsin in the last 
election declared for the establishment of a commis- 
sion to control railway services and railway rates on 
state commerce.’’ The clear intent of this statement 
is to create the impression that the people of Wiscon- 
sin endorsed the position for which Governor LaFol- 
lette is contending. If such was not the intent of the 
statement, it would have been limited in its applica- 
tion. This is not as frank a statement of the facts as 
the reader has a right to expect from so distinguished 
a writer. The fact is that in Wisconsin last year no 
man could have cast a vote which did not declare for 
a railway commission, for a plank in that behalf was 
in the platform of each political party. But Governor 


10 UNFAIR RAILWAY AGITATION. 


LaF ollette stood before the state as the exponent of 
a particular theory of railway regulation. He 
stumped the state in one of the most brilliant politi- 
cal campaigns ever waged in Wisconsin, exploited his 
theories thoroughly before the people of the whole 
state, and at the end was only saved from complete 
political rout by the unprecedented vote accorded the 
president, who was at the head of the ticket on which 
he was a candidate. As it was, he ran 105,000 votes 
behind his ticket, and the candidate for state treas- 
urer whom he had removed from office for malfeas- 
ance, and whom he openly charged from the public 
platform with having personally misused the funds 
of the state, and whom he and his followers exerted 
their utmost endeavor to defeat, received 35,000 more 
votes than he. Nor could this vote against the rail- 
way theories of Governor LaF ollette be charged to 
the classes to whom he so contemptuously refers in 
his public addresses as ‘‘favored shippers”’’ and ‘‘co- 
erced employes.’’ Twenty-five of the strongest agri- 
cultural counties of the state, in which he received an 
aggregate majority of 33,000 on the occasion of his 
first election, gave, last year, an aggregate majority 
of over a thousand against him. These were solid and 
substantial farmer counties, where the people remem- 
bered the Potter law of thirty years ago. The people 
of Wisconsin were for railway regulation, but not for 
regulation that seizes and confiscates the business of 
the carriers, such as was proposed and is now adyo- 
eated by Governor LaFollette. There is no over- 
whelming popular clamor for any issue which 105,000 
voters, more than a quarter of the entire voting popu- 
lation of the state, affirmatively reject. 


A REPLY TO GOVERNOR LA FOLLETTE, +11 


COMPARATIVE PROSPERITY OF WISCONSIN. 


But, if government control of railway rates were a 
necessary factor in the prosperity of a state, ought 
we not, by this time, to have had some evidence of it 
in the advancement of those states in which it has been 
for some years in force. Governor LaFollette has for 
the most part rested his case upon comparisons of 
Iowa and Wisconsin. It is of interest, then, to turn 
to the pages of the census, to see what the material 
effect has been upon the relative development of the 
two states. 

The total population of Iowa in 1890 was 1,911,896, 
and in 1900, it was 2,231,853, an increase of 16.7 per 
cent. The total population of Wisconsin in 1890 was 
1,686,880, and in 1900, it was 2,069,042, an increase of 
22.6 per cent., Wisconsin’s gain being 35.3 per cent., 
greater than that of Iowa. 

The value of products manufactured in Iowa 
in 1890 was $125,049,183; in 1900, their value was 
$164,617,877, an increase of 31.6 per cent. The value 
of products manufactured in Wisconsin in 1890 was 
$248,546,164; in 1900, their value was $360,818,942, 
an increase of 45.2 per cent. The increase in Wiscon- 
sin was 43 per cent larger than the increase in Iowa. 
Wisconsin has three times as much invested in fac- 
tories as Jowa. 

In 1890, the wage earners in lowa numbered 58,5538, 
and in Wisconsin 142,076. In Wisconsin, the wages 
earned amounted to $58,407,597, and in Iowa, $23,- 
931,680. Wisconsin employed 393,000 horse power im 
its manufacturing industries, and Iowa 125,000. 


ren UNFAIR RAILWAY AGITATION. 


In Volume 8 of the Twelfth Census, in the general 
article on the industries of Iowa, it is stated, 


‘Tn the thirty years since 1870, however, the 
difference in the rate of growth of the wage earn- 
ing class, as compared with that of the total pop- 
ulation has been much less pronounced, the pop- 
ulation having increased 86.9 per cent. and the 
wage earners 133.9 per cent. It is furthermore 
indisputable that the gain during this period in 
per cent. of average number of wage earners over 
population is limited to the decade ending in 
1890.’ 

If this observation of the experts of the Census De- 
partment means anything, it means that during the 
decade in which the Granger legislation was first es- 
tablished in Iowa, it stopped the growth of the indus- 
tries of that state. The next-decade had seen the ad- 
justment of interstate rates so as to afford the people 
of Iowa some relief, which, however, was temporary. 
and did not continue beyond 1890. It shows that while 
the ratio of wage earners to population is constantly 
increasing in Wisconsin it does not increase in Iowa. 
The distance tariff has paraluzed the industrial growth 
of Iowa. 

The following statements are made in the general 
article on Wisconsin in the same volume of the Cen- 
Sus: 

‘‘The remarkable growth of manufactures in 
Wisconsin is to be attributed to the abundant 
supply of materials and excellent market facili- 
ties. Manufacturing is not concentrated in a few 
localities, but is distributed throughout the state. 
* *  * In 1900, Wisconsin had 6,531 miles of 


railroads which have contributed to the develop- 
ment of agriculture and manufactures.’’ 


Towa is pre-eminently an agricultural state, and yet 


Rene LL yel OVGOVERN OR ED AROOD LE TTR, 278 


Wisconsin has taken the lead of her in dairying by 
fully a third. This is due to the fact that dairying 
can be encouraged in Wisconsin by the concentration 
and commodity rates which the tariffs of the railways 
afford, while in Iowa, nothing is open to the shippers 
but the straight distance tariff within the state, or the 
direct route to market by interstate rates. Jowa is a 
great live stock state, almost a tenth of the entire 
traffic of the state being in that commodity. And yet 
she tans no hides, while the leather output in Wisconsin 
amounted to $20,074,373 in 1900. This is because the 
commodity tariffs of this state permit the transporta- 
tion of the bark used in tanning at low rates, and be- 
eause the hides to be tanned can be shipped in cheaply. 
In Iowa the distance tariff makes no distinction between 
raw material and finished product. 

Governor LaF ollette’s assertion that the rates on 
merchandise in Wisconsin are 30 per cent. higher than 
the rates in Iowa, is one of those half truths that serve 
an argument as well as an untruth. There are rates 
in Wisconsin which are higher than rates that 
are in force in Iowa, but it has been shown time and 
again, and proved by limitless comparisons, that the 
rates on which the traffic is actually moved, and the 
rates between points where there are actual shipments, 
are in the main about the same in each state. In fact, 
to one who is at all familiar with the transportation 
question, nothing could be more absurd than the state- 
ment that a general average of rates could be main- 
tained thirty per cent. higher in one state than in 
another contiguous state, with which its commerce > 
is in constant competition, and with which its com- 
modities are in constant interchange. It would be a 


14 UNFATRORALE WAY SAGUTRAVI ESN, 


physical impossibility. Such a difference in rates 
would amount to a dam across the channels of com-. 
merce over which no business could possibly flow. 

Of itself, the railway business is a large interest, 
and its related importance to the commerce of the coun- 
try is not inconsiderable. For the most part, its man- 
agement is committed to the hands of men whose time 
and energies are engrossed in its affairs. They have 
not the time to devote to the literary propaganda and 
the lecture platform, which some of their more for- 
tunate fellow citizens possess. It, therefore, happens 
that in the nature of things much more is said and 
written to arouse the prejudices of the people against 
the railways than can be prepared in answer to the 
baseless charges which are bandied about for polit- 
ical purposes, and in refutation of the half-true statis- 
tics upon which the anti-railway agitation rests. It 
may be asserted, however, as a general truth, that 
‘‘fair railway regulation’’ cannot be successfully based 
upon ‘‘unfair railway agitation,’’ and that in the end, 
the broad and underlying good sense of the American 
people can be relied upon to arrive at the basic facts, 
and to find, through all the din and clamor, the ulti- 
mate truth upon which conservative action will be 
based. 


II. MISLEADING STATISTICS ANALYZED. 


In all his public discussions of the transportation 
question, Governor LaF ollette has used computations 
which do not support the conclusions he draws from 
them, and he has always involved the question in a 
maze of technicality which is foreign to the issues. 
It is true that there is no business more involved 
with intricate complications than the adjustment of 
the transportation rates which control to a large de- 
gree the flow of commerce, but there is no technical 
complication in the commercial results attained by 
the railways. There are three departments into which 
railway statistics are divided: financial, traffic and 
operating. These departments are as distinct as though 
they were separate transactions, although to a large 
extent they involve the same business. In treating 
the transportation problem, Governor LaFollette 
habitually disregards the lines between these divis- 
ions. He confuses his readers and misleads them, by 
attempting to apply computations from one depart- 
ment to the transactions of the others. 

The system of railway accounting is so simple that 
it may be easily understood by all. The volume of 
business is represented by gross earnings. That is 
the money received from the traffic carried, and corre- 
- sponds to the sales account of every merchant. From 
this, the cost of operation is deducted, and the result 
is net earnings, which corresponds to the profit and 
loss account of every set of books. This shows in 
gross amount what a railway company has made, and 
there is no other computation necessary to arrive at 
the amount of its actual earnings. Neither ‘gross 


15 


16 UNFAIR RAILWAY AGITATION. 


earnings nor net earnings have any bearing upon the 
question of what rate has been charged for transpor- 
tation, any more than the amount of the profit and 
loss account of a merchant determines what price he 
has charged for the articles he has sold. ‘The net 
earnings of the railways may increase materially in 
the face of a material reduction in rates, and they 
may decrease materially in the face of a material in- 
crease in rates. 


Tur Rate Per Ton Per Mie. 


There is but one computation in railway accounting 
that has any bearing upon rates, and that exactly de- 
termines what the average rate has been on the traffic 
actually moved. That is, the rate per ton per mile. 
The rate per ton per mile is obtained by first multi- 
plying the weight of each shipment by the distance 
it is transported, which gives the equivalent of the 
weight transported one mile, and when this is re- 
duced to tons and the whole freight movement is added 
together it gives the equivalent of the whole amount 
of tons moved one mile; the total revenue received is 
divided by the total ton miles, and the result is the 
average amount received for transporting one ton one 
mile. Inasmuch as traffic is moved upon an infinite 
variety of rates for an infinite variety of distances, 
the only unit to which the business can be reduced 
is the movement of one ton one mile, and the revenue 
derived therefrom. In all the statistics which Gov- 
ernor LaF ollette has presented to the readers of The 
Saturday Evening Post, the rate per ton mile is ig- 
nored, and a complicated array of confusing figures, 
having no bearing whatever upon the rate question, is 
presented. 


A REPLY TO GOVERNOR LA FOLLETTE. 17 


The statistics presented by Governor LaFollette, in 
their fundamental inaccuracy are characteristic of all 
his public discussions of this question. The facts of 
transportation show that rates have generally declined, 
and that for the last few years all the elements of 
cost have increased beyond the slight recovery shown 
in rates. In the face of these facts, Governor LafFol- 
lette has made a presentation, plausible, upon its face, 
and by its very plausibility calculated to mislead those 
who read it and force upon them wrong conclusions 
concerning the questions involved. It is, therefore, of 
interest to examine in detail the statistics upon which 
his charges rest. 


UNWARRANTED ASSERTION OF REVENUE INCREASE. 


The statement is made that ‘‘the coal rates; the iron 
schedules; the rates upon grain and its products; lum- 
ber; live stock and its products, are generally higher 
than four years ago—the increases upon coal rates 
alone amounting to very much more than $25,000,000 
per year.’’ If it were true that the increase of rates 
on coal alone amounted to $25,000,000, there is no way 
in which that fact could be established from any data 
which are available. The report of the Interstate 
Commerce Commission for 1903, however, does con- 
tain facts which indicate very strongly that this as- 
sertion probably is not true. As the statistics for 
1903 are the latest figures published, it will be assumed 
that when Governor LaF ollette speaks of ‘‘the last 
four years’’ he means 1900 to 1903, inclusive. 

The classes of traffic which are specified as having 
advanced, constituted in 1903, 75.42 per cent. of the 
entire traffic of the country. The rate per ton mile 
in 1900 was 7.29 mills, and in 1903, it was 7.63 mills, 


18 UNFAIR (ORALLWAN AGITATION 


having advanced thirty-four one-hundredths of a mill. 
The ton mileage of 1903 was 173,221,278,993. When. 
the advance in the rate per ton mile is applied to the 
ton mileage of 1903, it would indicate that the advance 
in rates added to the revenue of the companies in all, 
only $58,895,234. 

In view of the fact that in these four years there 
was no advance in rates on soft coal, and that hard 
coal constitutes but about 6.3 per cent. of the entire 
tonnage of the country, it does not seem probable that 
almost 50 per cent. of the entire advance could have 
fallen upon that commodity alone without producing 
a serious disturbance in its relations to other com- 
modities. While there are no data upon which the 
statement can be refuted, all the probability is against 
its accuracy. There certainly are no data in existence 
by which such a statement can be substantiated. 

It is interesting in this connection to note, while 
$58,895,234 of the increase in gross revenue of 1903 
over 1900 is attributable to the advance of .34 of a mill 
in rates, that during the same time the operating ex- 
penses of the companies increased $296,110,341. The 
advance in rates from 1900 to 1903 amounted to 4.6 
per cent. Against this the ratio of operating expenses 
to tonnage handled increased 7 per cent. during the 
same time. 


THe Rate ‘‘PerR Eacu Ton or FReicut.’’ 


The rate per each ton of freight—not per ton mile— 
is stated to have been about 123 cents higher in the 
spring of 1904 than in 1899. This is a computation 
made by the statistical department of the Interstate 
Commerce Commission, which can be accounted for 
upon no more serious theory than the satisfaction of 


A REPLY TO GOVERNOR LA) FOLLETT EH. 19 


curiosity. Inasmuch as no such thing exists in the 
railway business as a rate per ton, except for a certain 
distance, it is clear that the separation of the com- 
modity from the distance transported, leaves a result 
which is of no force or value whatever. The fact that 
the rate per ton, separated from the element of dis- 
tance, was 123 cents higher in 1904 than in 1899, does 
not show that any greater amount was charged for the 
transportation of freight, but it does show, and all 
it does show 1s, that in the average each ton was trans- 
ported farther and therefore earned more revenue. 
The report of the Interstate Commerce Commission 
shows that the average haul per each ton did increase 
3 per cent. during this period, while the increase of 
122 cents is an advance of less than one per cent. 
Governor LaF ollette states that when this increase 
was applied to the traffic of 1903, 1t was found that it 
meant an increase of over $155,000,000 in gross earn- 
ings from this cause alone. It is evident that his au- 
thority for this statement is the report of the Inter- 
state Commerce Commission to the United States Sen- 
ate, dated April 7, 1904, in which it was asserted that 
the increase in rates from 1899 to 1903 had added to 
the gross earnings of the carriers for the year 1903 
the sum of $155,475,502. According to the figures 
given by the Interstate Commerce Commission them- 
selves this could not have been true. Their report 
shows that from 1899 to 1903, the rate per ton mile 
increased .39 of a mill, and that the total tonnage of 
1903, was 173,221,278,993. This, multiplied by the in- 
crease in rate, shows that the increase in gross revenue 
was $67,556,298. Inasmuch as the increase in rate is 
shown to have been but 5.4 per cent., it is difficult to 
see how the assertion that 36 per cent. of the revenue 


20 UNFAIR RAILWAY AGITATION. 


was derived from increases in rates can be true. The 
figures themselves as they are given by Governor La- 
Follette disprove the assertions he makes concerning 
them. 


Incorrect STaTEMENT OF INCREASE OF TRAFFIC. 


Governor LaFollette states that the volume of traffic 
has increased 52 per cent., comparing 1902 with 1897. 
This percentage he arrives at by comparing the tons 
of freight ‘‘carried one mile per mile of road.’’ This, 
like the rate per each ton, is a mere statistical computa- 
tion not based upon a fact, nor leading to the conclu- 
sion of a fact. It is arrived at by dividing the number 
of tons of freight carried one mile by the miles of road. 
It is obvious that it has no bearing whatever upon the 
volume of business. For illustration, take two roads 
with the same number of tons carried one mile, but with 
different mileage; this computation would show that 
one road averages more ton mileage per mile of road, 
-but it would still be true that they each carried the 
same number of tons per mile. The fact is that 
in 1897, the number of tons carried one mile was 
95,139,022,225, while in 1902, it was 157,289,370,053, a 
gain of 62,150,347,828, or 65.3 per cent. and not 52 per 
cent. as stated by Governor LaFollette. 


Inaccurate Estimate oF InoreaseD HiqurepMENT 
HIFFICIENCY. 


The deductions which Governor LaF ollette seeks to 
draw from the increased efficiency of equipment are 
not sustained by the facts which he gives. It is true 
that it does not require as many cars to handle a given 
quantity of freight as it did some years ago, and it is 
true that more tons are hauled with one engine than 


Ae Ora Ow RN OR VASE OL LB IDR. 2 


formerly were, and it is true that the tonnage per 
train has increased, and that the revenue per train 
mile has correspondingly advanced; but it is not true 
that the cost of transportation has decreased in the 
ratio by which these facilities have increased. 'The 
larger cars cost more, and it requires as much power to 
haul a million tons of freight in 1268 cars as it does 
to haul a million tons of freight in 1647 cars. The 
fact that one locomotive will haul more freight than 
another, does not indicate that the cost of transporta- 
tion is reduced in proportion to the relative power of 
the engine, because the larger the engine, the more 
fuel it consumes and the more it costs to run it. What 
Governor LaF ollette has presented, and the facts upon 
which he bases his assertion that the efficiency of rail- 
way equipment has increased 42 per cent. is merely 
the result of improvements in efficiency and not the 
causes which have brought it about. There is but one 
way in which the relative efficiency of equipment can 
be determined, and that is, by the work it does. This 
would be accurately arrived at by dividing the number 
of tons hauled one mile into the operating cost of 
hauling that tonnage. Owing to the fact that the 
railways do not report, and in the nature of things 
cannot determine operating expenses separately for 
freight and passenger business, the exact figures can- 
not be arrived at. However, the ratio of freight and 
passenger traffic to each other is substantially the same 
in any two recent years, and so the ratio of operating 
expense to the ton mileage, while not the exact figure 
at which the tonnage is transported, affords a basis 
for comparison as between any two years. At any 
rate, it is the nearest we can get to the efficiency of 


22 UNFAIR RAILWAY AGITATION. 


equipment. We find upon this basis that in 1897, the 
ton mileage was 95,139,022,225, and the operating ex- 
penses were $752,524,764, or 7.9 mills per ton mile. 
In 1903, the ton mileage was 173,221,278,993, while 
the operating expenses were $1,257,538,852, or 7.2 mills 
per ton mile. It must be borne in mind that these fig- 
ures are relative and not actual, because the operating 
cost of the passenger service is included in the operat- 
ing expenses and figured against the ton mileage of 
the freight business only. However, this shows an 
inerease in efficiency of 9.72 per cent. and not 42 per 
cent. as asserted from the mere added capacity of 
equipment. 


INCORRECT STATEMENT OF INCREASED EARNINGS. 


Governor LaFollette states that the gross earnings 
per mile increased from 1897 to 1902, 40.9 per cent. 
Gross earnings have no relation to the mileage, and 
a mileage result is materially misleading. In 1897, 
the gross earnings were $1,122,089,773, and in 1902, 
they were $1,726,380,267. 'The gain was $604,290,494. 
A very simple computation will determine that the in- 
crease was 53.8 per cent and not 40.9 per cent. 

Governor LaF ollette states that the increase in net 
earnings per mile from 1897 to 1902 amounted to 46 
per cent. The actual net earnings in 1897 were $369,- 
565,009, and in 1902 were $610,131,520; the gain being 
$240,566,511 or 65 per cent., and not 46 per cent. 

The ton mileage of 1902, as compared with 1897, 
increased 65.3 per cent. Therefore, if the rates had 
been the same in 1902 that they were in 1897, the gross 
revenue would have increased 65.3 per cent. As a mat- 
ter of fact, it did increase 53.8 per cent., showing that 
rates must have declined in order to carry an increase 


A REPLY TO GOVERNOR LA FOLLETTE. 28 


in tonnage larger than the increase in revenue. In 
1897, the rate per ton mile was 7.98 mills, and in 1902, 
it was 7.57 mills, a decrease of .41 of a mill or 5.4 per 
cent. Deducting the percentage of decrease in rate 
from the percentage of increase in tonnage leaves the 
net increase 59.9 per cent., which is within 6.1 per cent. 
of the increase in gross revenue. | 

In the five years covered by this comparison, this 
difference of 6.1 per cent. might easily arise from the 
variation in data in the different years. However, it 
clearly demonstrates that during this period rates not 
only could not have advanced, but the indication is 
that in the actual application to the traffic carried they 
declined more than is indicated by the rate per ton 
mile, which may have resulted from the shifting of 
the proportions of business as between high grade and 
low grade traffic. 

We find that the net earnings for this period in- 
creased 65 per cent. If the expenses of operation 
had been the same for this period, gross earnings 
would have shown the same increase. We find, how- 
ever, that gross earnings increased but 53.8 per cent., 
showing an excess of 11.2 per cent. in the increase of 
net earnings over gross earnings. This is the result of 
the increased efficiency of equipment to which Gov- 
ernor Lalollette refers, and as we have seen, this 
amounted in this period to 9.72 per cent. and should 
have produced an excess of increase in net earnings of 
that amount. The difference of 1.48 per cent. is not 
a material variation. 

Governor LaFollette states that net earnings in 1897 
were equal to 6 per cent. on $33,600 per mile, while in 
1902, they were equal to 6 per cent. on $50,800 per 
mile. The difference is $17,200 a mile, and would indi- 


24 UNFAIR RAILWAY AGITATION. 


eate an increase in net earnings amounting to 51.2 
per cent. This fact is inaccurate, for, as we have seen, 
the net earnings actually did increase 65 per cent. 
The increase of 65 per cent. in net earnings is not only 
justified by the growth and expansion of the business, 
but it has not kept pace with the development of expen- 
ditures. As compared with 1897, the trust obligations 
outstanding for equipment alone had increased in 1902, 
123 per cent. The additional equipment required to 
handle the enormously increasing volume of business, 
and the replacing of old equipment worn out, had of 
itself exceeded the increase in net earnings by 58 
per cent. The increase in labor occasioned by the 
growth of the business during this period, both in 
amount of labor employed and increased wages paid, 
amounted to 48 per cent. of the expenditure in that 
direction in 1897. During that time the expenditures 
for fuel had increased 40 per cent. 


Misteapine Eirrect or Net Hiarnincs Per Mire. 


The expression of net earnings upon a mileage basis 
is grossly misleading. It is obvious that the net 
earnings should be measured by the volume of busi- 
ness and the expense of transacting it, rather than by 
the mileage operated. The miles of track have no re 
lation whatever to the business done, while the equip- 
ment and the expenditures are vital factors in the 
transaction of the business. The unfairness of such 
a comparison as this would be readily seen if the 
earning capacity per mile of the Pennsylvania Railway 
between Jersey City and Philadelphia were compared 
with an equal number of miles of the Chicago, Mil- 
waukee & St. Paul Railway in North Dakota. It is 
manifest that the difference in volume of business 


AYRE DY TO GOVERN ORCA” HOG TET TE.’ 26 


would render such a comparison entirely valueless. 
The difference of 65 per cent. in volume of busi- 
ness from 1897 to 1902 renders the compari- 
son of earnings per mile on the railways of 
the entire country just as valueless. The net 
result, however, is very easy to ascertain by 
computing the ratio of net earnings to the ton mileage, 
which compares the net result with the amount of busi- 
ness transacted. As heretofore explained in a similar 
comparison, it contains the inaccuracy of having the 
result of passenger business in the net earnings, while 
only the freight business is compared to it, but as this 
is true of both years, for the purpose of comparison, 
the relation between the two years would be the same. 
We find in this computation that in 1897, the net 
earnings were $369,565,009, and the ton mileage was 
95,139,022,225, the ratio being .0038 per cent. In 1902, 
the net earnings were $610,131,520, and the ton mileage 
was 157,289,370,053, the ratio being .0038 per cent. We 
thus find that despite the reduction of 5.4 per cent. in 
the rate per ton mile as between these two years, the 
relation of net earnings to the ton mileage remained 
the same, showing that the increased economies in 
operation just equaled the decrease in rates. With 
this result the amount of ‘‘earnings per mile’’ has 
nothing whatever to do. No matter how much they 
may have increased per mile, the figures show that for 
the two years compared, they were exactly the same, on 
the business transacted. 

The increase in net earnings of railways is fre- 
quently referred to as evidence that rates are too 
high. Such increase is due, not to high rates, but to 
constantly increasing tonnage, which is being handled 
with constantly increasing economy. 


26 UNFAIR RAILWAY AGITATION. 


The state has the power to fix the rates of interest 
which may be charged for the loan of money, and it 
does fix such rates. Under this rate some banks are 
prosperous, while others are not able to earn a sub- 
stantial profit. The same thing is true of railway 
rates. Under the same tariff schedules some railways 
earn satisfactory revenues, while others meet bank- 
ruptey. In the case of both banks and railways it is 
not the rates, on which the profits are primarily made, 
but the volume of business and the economy of man- 
agement. The fact that some banks earn large divi- 
dends is as much a reason for further reducing the 
rates of interest, as that because some railways show 
a profitable earning capacity, the rates of freight 
should be reduced. If exactly the same campaign 
should be started against the banks of this country 
that has been waged against the railways, there would 
be no difficulty whatever in enlisting popular support 
for the enactment of laws by the different states fur- 
ther reducing the interest rate, and this campaign 
could be based solely on the assertion that the banks 
are making too much revenue. And yet, every one 
knows that if the legal interest rate were reduced, it 
would only make it that much harder for people need- 
ing financial accommodation to secure it. The reduc- 
tion of railway rates, even though at the present rates 
some companies are prosperous, could not be effected 
without depriving manv railways of necessary reve- 
nue, with the result that in the end, the commerce of 
the country would be inevitably crippled by the read- 
justment of transportation conditions to depleted treas- 
uries and unprofitable operation. 


A REPLY TO GOVERNOR LA FOLLETTE, 27 


Figures JuGGLED To Propuce Derstrep Hirrect. 


The presentation of these statistics is further tainted 
with an irregularity which is unworthy either the 
source from which it emanates, or the subject to which 
it is applied. 

The first comparison is between 1904 and 1899; the 
next between 1897 and 1902; the next between 1897 
and 1903, and the next between 1897 and 1902. 

Up to this point all the comparisons, except the 
first, which is not a material one, are between periods 
at which the rate per ton mile, which is the actual 
average of rates in force, was higher at the earlier 
date than at the later one, and in any one of these in- 
stances if the rate per ton mile had been used in con- 
nection with the other data, it would have refuted every 
argument made. However, when the rate per ton 
mile is quoted, 1899 is compared with 1902, two years 
which are not compared for any other purpose. This 
shows for that period an increase in the rate per ton 
mile because in the commercial depression of 1899, 
and especially because of the excessively low rates in 
force that year on bituminous coal, which constitutes 
20 per cent. of the traffic of the country, the rate had 
declined to an abnormal] figure. From this abnormal 
depression there has been since 1899 a steady recov- 
ery, so that in 1902 the rate had reacted from 7.24 
mills to 7.57 mills, an increase of 4.5 per cent., though 
it was still 5.4 per cent. below 1897, the basis of , 
nearly all of Governor LaFollette’s comparisons. 

If Governor La Follette had taken the average rate 
per ton per mile for 1897, the year from which his 
other data are for the most part drawn, he would have 
shown a decline in rate from 7.98 mills to 7.57 mills. 
It was clearly to avoid showing this decrease that he 


28 UNFAIR RAILWAY AGITATION; 


took the unusual and exceptional figures of 1899. On 

the other hand, had he used 1899 for the earlier pe- — 
riod of his other comparisons, it would in every case 
have reduced the showing which he desired to make. 
It is not fair to people who depend for their informa- 
tion upon the statements given them to produce arti- ~ 
ficial results by such juggling with the facts. 


ADVANCE IN WAGES AND MaTERIALS. 


According to the figures given by Governor LaF ol- 
lette, rates have advanced but 4.55 per cent., and yet 
he dismisses an advance in wages amounting to an 
average of 6.10 per cent. for trainmen, 4.46 per cent. 
for shopmen and 4.89 per cent. for trackmen and other 
employes, as of no special account. He seeks, through- 
out the entire presentation of the subject, to charge 
against the railways all the increase in volume of busi- 
ness, with no allowance for the increased cost of trans- 
acting the additional business, as well as the actual 
increase of cost by reason of the advance in labor and 
materials. It will be noted in the above percentages 
of labor increases that the larger increase has been 
in the department where the most men are employed, 
and among the class of employes who receive the 
larger amounts of compensation. This adds mate- 
rially to the net result of the increases. 

Governor LaF ollette says: ‘‘It is true that mate- 
rial is somewhat higher.’’ This is a conservative 
statement of the fact. The accompanying statement 
shows what the effect of these prices which are ‘‘some- 
what higher’’ have had on the purchases of supplies 
by The Chicago, Milwaukee & St. Paul Railway Com- 
pany, comparing 1902 with 1897. 


A REPLY TO GOVERNOR LA FOLLETTE. 29 


PRICES OF 1902 COMPARED WITH 1897. 


Amt. Ad- { 

ARTICLE. Bought || vance |Decline |/Increase ||Decrease 

per cent|/per cent|per cent]; per cent || per cent 

Tron and Steel (Supplies) || 50. Gets Witter as pi Ora cule Sarai, 
Kerosene Oils pei TEOC LU ewer ste ae HOOZ Ss Veen aia 
GAEL ittep ae ts. ah eee ares Te OS ti at pecan rma Hee coe a WTP, Sg 
Ponies CUE, oye ce wes Vee a0 LES AAPM octane areca are cata edged cpahia «AP ara are ae 
Teirineee Cele Vase Nae ees ty CTL E LOR Bal AiR. eae SOUS ZF thee, be oe 
REI eda ee nose hia os Sa |B 2 iN Ne ee es BOLO Ca nae 
IV RILMGU IU A acy eels acre! ROR ices: erent etl) eee eee Ghar 
Gonpemere weds wists ils. fo.4 1.5 1 Ret ret a ADOT aa at aeh 2 
CRC cee ne Ce edn os cfs 2 SPADE Com Wah aa ae POUOD GE at overs 
PLAT aR y tis.) di hai Si ts “se OA ER it aes gee Wid OUSM HE es tio, 

Portland Cement ....... Be Panera AQ St Mba ehereiess 012 
Air Brake’ Hose... 2 ..°5..°. re Ae Peace NY TO GUAT Ais Sora: .0004 
Water iitose (8 23.5 ...4). .19 Den oe ie wuake aes OOOOH Tee e: 
BieGn LLOSG 2 coos Ay eee’ EOL, Hate ee AGS potent des | pare Cn pee 0001 
Car Heating Hose....... eT OA Ope ESS Lt (aeafaee a oe 00008 
PtPeertOSe tee. anes sok vip ee .05 (hag Yh Heenan QOOGS Hi ao in 
PMak 3 S500) Cg SR REE aah ay RG ie eat a arte MN e eae 006 

PRAT OOB he i 2 ton i ¢ POD Mi hor enat dads ak OOS vitae mane’ 
POUNGry COBL ji. /- wats oe PLA uate ees AUT iuneenan cig 0004 
Smithing Coal ror rk. Aor he bernie Haters pied VOUS Hie amas 
PGMS De be fr an.G..'s fh peel: .09 OR a Naa DOOOS TH. ohne 
COR GC CORL I ch) dicts Bore SANT LOO ei: Sone eta ay Ar Tere ee 
ACE RE a he Rn aoa .76 GO einie ties GODS Tit Sera 
SSriChaate Boas HOU Nida sel We estore are AW ec ter 
Brick, Paving iets OSG Deven tei tc DOU ees 
Brick Locomotive....... .40 De PRL Gh deals OODOS Hees ds « 
Lumber and Timber ... 25. SPIO ane cientee Par ONG erases 

Pais oR LL Seehee ae bei A a 4 41 .27168 .01898 

Net mecreasein cost 4). tile cases Veet sin de 41.25 


The amount of purchases is the per cent. of the given commodity of 


the total purchases made by the purchasing department, which does 
not include fuel, steel rails, or equipment of any sort, but is confined to 
‘sgupplies.”” The advance or decline is the difference in price between 
1902 and 1897 in per cent. The increase or decrease is the amount in 
per cent. which the advance or decline in price, applied to the amount 
purchased, affected the expenditures of the company. 


50 UNPATR? RATLU WAY (AGIPAT LOM 


In the supplies covered by this statement, the in- 
creased cost due to rise in values, amounted to $2,333,- 
998.94. In steel rails the increase in price since 1897 
is 61.4 per cent, which, on the purchases of this com- 
pany in 1902 amounted to an additional cost of $692,- 
588.97. From 1899 to 1902 there was an advance of 
14 cents a ton in the average cost of fuel for this road, 
which, on the purchases of 1902, made an additional 
cost of $262,456.60. It is true that ‘‘material is some- 
what higher.’’ 

The situation of the Chicago, Milwaukee & St. Paul 
Railway in this connection is not different from the 
other railways of the country. In the North Amer- 
ican Review for February, 1905, Mr. W. Morton Grin- 
nell presents statistics which show that the average 
advance in the wages of railway employes since 1898 
has been fully 15 per cent., and in the same periodical 
for March, 1905, Mr. David Willcox shows that since 
1899 all railway expenses, including the cost of all 
materials which the railways use and consume, have 
increased in greater ratio than income. 


FRrreigHt Nor Paip py THE CONSUMER. 


An economic fallacy to which the opponents of rail- 
ways have clung with great tenacity is the ‘‘tax of 
transportation’’ upon consumers for the necessities 
of life and other merchandise. 

Practically speaking, it is true that the freight on 
merchandise does not to any extent whatever affect 
the price at which goods are sold. The system of 
transportation is such that this tax, while relatively 
high in rate, is the lightest burden which transported 
commodities bear. The transportation of merchandise 


Ae eiey TOUCGONV BRNO ROL ACh O TD Belt Boot 


does not-in the average represent 2 per cent. of its 
value from production to consumption. It is obvious 
that no merchant could or does compute the amount of 
freight per pair of shoes, or the amount of freight per 
hat, or the amount of freight per suit of clothes. It is 
within the common knowledge of every one that stand- 
ard makes of hats, shoes and clothing and established 
brands of cigars are sold in Seattle at the same price 
they are sold in New York, though transported across 
the continent. The amount of transportation charged 
is so small that it does not affect the retail price. 
This is very strikingly shown by the statistics of re- 
tail prices of different commodities in different states, 
prepared by the Hon. Carroll D. Wright, of the Gov- 
ernment Bureau of Labor and Statistics. 

As compared with Wisconsin, in Iowa, Illinois, Min- 
nesota and Texas, where there are railway commis- 
sions, in 1893, the prices of the principal commodities 
which may be classed among the necessities of life 
were, generally speaking, materially higher. 


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$4 UNFAIR RAILWAY AGITATION. 


As shown by the accompanying table, in Iowa they 
ranged from 10 to 50 per cent. higher; in Illinois, with 
two exceptions, from about 10 per cent. to 27 per cent. 
higher, one of the exceptions noted being 2 per cent. 
higher and the other 95 per cent. higher; in Minnesota, 
with one exception, they run from 3 per cent. to 60 per 
cent. higher. In Texas they run from 13 per cent. to 
167 per cent. higher. From the above statements, 
must be excepted eggs in Iowa, which are 9 per cent. 
lower than in Wisconsin, and dairy butter in Minne- 
sota, which is practically 10 per cent. lower; corned 
salt beef, flour and pork chops in Illinois, all of which 
are lower, and flour, in Texas, which is slightly lower. 

_It would be absurd to contend that because the prices 
of these commodities in Wisconsin are so markedly 
lower than they are in the other states, that therefore 
the freight rates of Wisconsin are equally lower; and 
it is as absurd to claim that a difference in freight 
rates would increase the price. 


InNcREASED REVENUE Dvz to IncrEAsED BUSINESS. 


Brought down to its final results, then, we find that 
the increase in either net or gross earnings of the rail- 
ways, is substantially commensurate with the increase 
in volume of business, modified by the slight advance 
in rates, which is more than overcome by the increased 
cost of labor and materials, and which, on the com- 
parisons presented by Governor LaFollette, has re- 
duced the increase in net earnings below the increase 
in gross earnings. It would seem as though the car- 
riers had taken their share of the burden of increas- 
ing values. 

On the other hand, it must be borne in mind that 


Auk bee Sh Gr Onv IG RON OUR ua Ob EBD ee ae 


all the commodities transported are worth more than 
they were five years ago, and that the slight advance 
in rates which is shown is by no means equal to that 
advance. So that not only are the carriers actually 
receiving less for their service than they were five 
years ago, but the shipper, in proportion to the value 
of the service to them are also paying much less. 

It seems reasonably clear that if the case of ‘‘fair 
railway regulation’’ rests for its foundation upon ex- 
cessive or advancing railway rates, it is a foundation 
that there is no evidence to sustain, in the face of 
rates that have been constantly and steadily lowering 
for thirty years, and which in the very nature of the 
course of commerce must continue to lower as the vol- 
ume of tonnage increases. Certainly there is no 
wrong here which requires the intervention of gov- 
ernmental regulation. 


III. THE CONTROL OF TRANSPORTATION RATES. 


A fair conclusion to be drawn from the introductory 
portion of Governor LaF ollette’s third article in The — 
Saturday Evening Post is, that the commercial and 
industrial interests of this country are in danger of 
annihilation and destruction unless the restraining 
hand of the government is laid with its extreme power 
upon the carrier corporations. 

There are but two ways in which the carriers could 
impair the commerce of the country, passing by for 
the moment the inherent absurdity of the proposition 
that they would do so if they could; that is by the 
imposition of either exorbitant rates, or discrimina- 
tive rates. No fair minded railway offiaal attempts 
to question that it is not only within the power of the 
government to prevent both these injustices, but that 
it is also its duty to do so. So far as real railway 
regulation is concerned, the opponents of railways 
build up a man of straw which they valiantly batter 
down. 


E.xkins Law Prevents REBATES AND DISCRIMINATIONS. 


In a page and a half of space devoted to these propo- 
sitions, Governor LaFollette devotes a line and a half 
to the Elkins amendment of the Interstate Commerce 
law which has, practically speaking, done away with 
rebates and discriminative rates. In proof of his as- 
sertion that rates are unreasonable and extortionate, 
he quotes numerous excerpts from the demands of the 
members of the Interstate Commerce Commission for 
an extension of their powers. So far as the evil of 
secret preferences and rebates is concerned, the In- 


36 


Ae Pink LOIGOVERN ORVGAY BODE ET TE. 37 


terstate Commerce Commission itself is of the opinion 
that the present law is ample and that it will abolish 
that evil, if it has not already done so.. In the report 
for 1903, on pages 10 and 11, the commissioners say: 


‘“TIndeed, it is believed that never before in the 
railroad history of this country have tariff rates 
been so well or so generally observed as at the 
present time. * * * In its present form, the 
law seems to be about all that can be provided 
in the way of prohibitive and punitive legislation. 
Unless further experience discloses defects not 
now perceived, we do not anticipate the need of 
further amendments of the same character, and 
designed to accomplish the same purpose.’’ 


According to this testimony of the Interstate Com- 
merce Commission, the law now provides full and am- 
ple protection from rebates and secret preferences, 
and the government, in the exercise of its power, is 
enforcing the equal rights of all in the use of the 
highways of commerce on the same terms. And yet 
Governor LaFollette disposes of this most important 
law in a sentence, and in the next sentence calls atten- 
tion to the fact that it affords no protection from ‘‘un- 
reasonable and extravagant rates.’’ 

It may be asserted, upon the authority of the Inter- 
state Commerce Commission, that in considering the 
need for railway regulation, the subject of undue pref- 
erences and rebates may be eliminated, as being amply 
covered by the present law. It is, therefore, interest- 
ing to note just what evidence can be brought to sup- 
port the contention that rates charged are exorbitant 
or excessive. 

The United States has the cheapest transportation 


38 UNFAIR RAILWAY AGITATION. 


rates of any country in the world in which railways 
are operated. The rates in this country are only a 
third of those in Great Britain and France, and half 
of those in force in Germany. It is true that with the 
tonnage of our railways our rates ought to be lower, 
but the point is that they are. 

In its annual report for 1893, the Interstate Com- 
merce Commission said: 


‘<To-day extortionate rates are seldom the sub- 
ject of complaint.’’ page 12. 

‘‘We are not troubled with the question that 
rates are * * * too high.’’ page 17. 

‘‘Tt is significant that there has been, under the 
operation of the interstate commerce law, a steady 
decrease of complaints based on charges unreason- 
able in themselves.’’ pages 218 and 219. 


In 1898, the chairman of the Interstate Commerce 
Commission testified before the Committee on Inter- 
state Commerce of the United States Senate, that the 
question of excessive railway charges—‘‘that is to 
say, railroad charges which in and of themselves are 
extortionate, is pretty much an obsolete question.’’ 

When this testimony was given, the rate per ton 
mile was within one one-hundredth of a cent of what 
it was in 1903. So that it may be safely asserted upon 
competent and irrefutable authority, that the rates, of 
themselves, are not subject to reasonable complaint. 
No one complains that he is charged too much for 
transportation. ‘The whole complaint, and all the 
agitation against railways in this country, is based 
upon the adjustment of rates with relation to other 
rates. This fact should be clearly understood by 
every one who wishes to give to the matter the un- 


A REPLY TO GOVERNOR LA FOLLETTE. 39 


biased consideration upon which a fair conclusion must 
be founded. 


WARFARE OF POLITICIANS FOR POWER. 


The present warfare, which is being waged against 
the railways is a gigantic battle of the politicians, to 
secure a power which, if obtained, will pale to insig- 
nificance the imperial autocracy of Rome and plunge 
the commerce of this country into the direst disaster 
it has ever known. 

It will not be seriously contended by any one that 
the adjustment of rates as between themselves is per- 
formed by the railways with satisfaction to the inter- 
ests affected, nor will it ever be, so long as the human 
heart is selfish, and commercial nature is avaricious. 
The whole basis of complaint against the adjustment of 
rates is, that some particular interest, or some par- 
ticular community, or section of country, deems itself 
entitled to better rates in certain directions than it 
has. This is a condition that will always exist so long 
as there are people who think they ought to have more 
business than they have, or more money then they pos- 
sess. It is a manifestation of the universal discontent 
of the human heart, and no railway, or combination of 
railways, nor any railway commission, can ever change 
that condition. That some people should be more fa- 
vorably situated with reference to transportation facil- 
ities than others, is as natural and as inevitable as 
that they should be more favorably located than others 
with reference to raw material. Absolute equality is 
not afforded to any one by nature, or in commerce, 
and the railways cannot overcome the natural limi- ~ 
tations under which they and others labor. 


40 UNFAIR RAILWAY AGITATION. 


The universal discontent which exists in respect of 
taxation, which is a purely government function, and 
subject entirely to government control, is similar to 
the general dissatisfaction with the adjustment of 
freight rates. Indeed, the inequities of taxation, and 
the inequalities of assessment growing out of political 
favoritism, and resulting from political influence are 
practically universal throughout our taxing system, 
and are much more glaring in their injustice than any 
difference in freight rates which has ever been com- 
plained of. If the government in the unrestricted ex- 
ercise of its power cannot produce a taxing system 
which commands the confidence of the people, when all 
that is involved in making it equitable is to apply the 
same measure of value to the property of different 
people, how can it be reasonably expected that the 
government administration of so complex a system of 
tariffs as railway charges could be administered either 
with justice to conflicting interests, or with satisfac- 
tion to the people. 


Reat Dancer Is From DemMacoaurs—Not Ratuways. 


From the political platform, alarming prognostica- 
tions are frequently made of the disaster which con- 
stantly threatens the welfare of the nation from the 
unlicensed and unbridled power of the carrier corpo- 
rations. But when we turn to the pages of the cen- 
sus, where there is written down in impartial honesty 
the record of our achievements, commercial and indus- 
trial, we find that from one end of the nation to the 
other, there has been the unbroken sweep of unparal- 
leled prosperity, except in those unfortunate periods 


A REPLY'TO GOVERNOR LA FOLLETTE. 41 


of our country’s history, when the suffrages of the 
people have been misled by the voice of demagogues, 
and they have written laws upon the statute books 
which have attempted to subject the natural course 
of commerce to artificial control. Wherever the rail- 
ways of this country have pushed their iron bands 
into the wilderness or across the prairies, towns and 
cities and villages have sprung up, and the hum of 
industry has followed in their wake. From the ear- 
liest days of our development until now, the railway 
has been the unfailing handmaiden of prosperity. 
Every shadow that has fallen across the prosperity 
of this nation can be traced with absolute directness to 
the economic fallacy of some designing politician. Not 
one instance of commercial depression or industrial 
paralysis can be traced directly or indirectly to any 
voluntary act of any railway. 

If the railways of this country possessed the auto- 
cratic power, which Governor Lal ollette ascribes to 
them, would not the experience of half a century have 
placed upon the records some specific instance of its 
misuse to the general detriment of the country? 

It is true that specific instances of individual cases 
are here and there brought to. the attention of the 
public. Some of them are true, but many of them are 
false. Those which are true are bad enough, and it is 
unfortunate that they should exist, but they are the 
isolated instances and the rare exception, and none of 
them reach proportions that affect the general result. 
Substantially, none of these cases is of such a nature 
that the exercise of the power of the government to fix 
rates would affect them. In practically every such in- 
stance, the complaint arises, not out of the rate, but 


42 UNEPALR RATE WA VA GID ATE Ou: 


out of its enforcement. The law is ample now to en- 
force the rate, and all that remains to correct such 
eases is the fearless and impartial enforcement of the 
Interstate Commerce Act, as it stands to-day. 

The business of eighty million people on two hun- 
dred thousand miles of railway, involving two billion 
dollars a year, could not, in the very nature of 
human frailties, be conducted without some friction, 
some injustice, and some inequity; but, in the main, 
this business has been transacted satisfactorily to the 
patrons and profitably to the railways, and under con- 
stantly and steadily declining rates. 

In every state there is a statute against murder, but 
in every state murder is committed. In every. state 
there is a statute against theft, but in every state theft 
is committed. Would it be fair, because it.is impossi- 
ble to enforce these statutes without infraction, to ar- 
rest all the citizens and put them in jail to be sure 
that none should steal, or to hang them so that none 
should murder? It would be as reasonable to do that 
to make it certain that no theft should be committed 
or murder done, as to insist that because some infrac- 
tions of the duties of railways are committed, the 
management of all the railways shall be taken out of 
the hands of their owners. 


Dury or State to REGULATE. 


No one attempts to deny that it is the duty of the 
state to see that the highways of commerce are kept 
open to all upon exactly the same terms, and that the 
charges for transportation imposed by the carrier 
corporations shall be just, reasonable, equitable and 
uniform. That is the law of the land, and it should be 


A REPLY TO GOVERNOR LA FOLLETTE, 43 


the province of the government to enforce that law, 
just as it enforces every other law, and in no different 
way. The penalties for the infraction of that law 
should be so severe that no shipper would dare to de- 
mand from a railway company a special concession or 
an unjust preference. The punishment should be so 
swift that no railway company would consider yielding 
to the demands which are constantly made upon them 
for unfair and undue preference. That this can be 
done is amply evidenced by the operation of the Elkins 
law. This is as drastic as the most ardent opponent of 
railways could ask, and yet, while it protects the in- 
terest of both the carrier and the shipper it does not in- 
fringe upon the rights of either. Under its operation, 
rebating and deviations from published tariffs have 
practically ceased. There is probably not a statute 
upon the books, either of the United States, or any 
state, under which, for the same period of time, there 
has been a smaller percentage of infraction. The 
Interstate Commerce Commission itself in repeated ex- 
pressions upon the subject has said that exorbitant or 
unjust rates are rarely complained of, and that dis- 
criminatory rates have been practically eliminated 
from the tariffs of this country. 

The Interstate Commerce Commission, as well as 
all unbiased students of the transportation problem, 
agree that rates, of themselves, as they exist, are gen- 
erally just and equitable, and that the principal evil 
which threatens, in the relations of transportation 
companies to shippers, is the undue preference and 
the rebate. It is not easy to see how the power to 
make rates conferred upon a railway commission will 
in any manner whatever affect the evil of rebates or un- 


44 UNFAIR RAILWAY AGITATION. . 


due preference. It would be as easy to grant a rebate 
from a rate fixed by a commission as it is under the 
present law to grant one from a rate fixed by the rail- 
way. The law that would prevent granting a re- 
bate from a rate fixed by the commission would pre- 
vent granting a rebate from a rate fixed by the car- 
rier. If the evils of transportation lie in the undue 
preference of any sort, it is clear that the remedy 
for it is not in taking away from the railways the 
power to make their rates. It has not been shown, 
and in the face of the facts as they exist, it cannot be 
shown that the rates themselves, if they are enforced 
alike for all, are unjust, unreasonable or inequitable. 


PoxuiticaL Powsr or Pornitrican Rate MaKIna. 


It is but natural then to inquire why this constant 
and persistent demand from politicians seeks to take 
from the carriers the right to fix their rates, and place 
that power in the hands of a political body. The an- 
swer is easy, for it comes out of the mouths of those 
who make the demand. It is true that in the hands 
of a political commission, the right to fix rates would 
exert over the commerce and industries of the country 
exactly the power which it is contended the railways 
exercise. The reason this power would inhere in a 
political commission, while it cannot exist in a com- 
mercial corporation, is that if the power were trans- 
ferred to a political body, the only consideration which 
restrains its use by the railways, and the only natural 
force which always has operated, and always will oper- 
ate to reduce rates, would be removed. The railway 
company in the nature of its business cannot build up 
one section of country at the expense of another, nor 


A REPLY TO GOVERNOR LA FOLLETTE, 4 


build up one community to the detriment of its neigh- 
bor, nor build up one industry at the expense of its 
competitor. Under its common law duty as a com- 
mon earrier, which can always be enforced in the 
courts, it could be prevented from doing this, but the 
selfish interest of the corporation itself is a stronger 
safeguard for the interests of the public even than 
the law. The carrier must have the business. It 
must have the business from all sections through 
which it runs, from all communities with which it is 
identified, from all industries upon its line. It is 
necessary, in order to secure the tonnage which natur- © 
ally belongs to it, that the railway should provide for 
different sections of its territory the special facilities 
which the nature of the business in particular local- 
ities requires. To this extent, it may be said that cer- 
tain sections of territory are specially favored. Hvery 
effort is undoubtedly made by every railway manager 
to develop every industry and every community that 
will produce tonnage for his road, but this is never 
done at the expense of other communities having simi- 
lar interests. The whole complaint against the ad- 
justment of rates rests on the unfounded claims of 
communties and localities for artificial advantages in 
commerce which do not of right or by nature belong to 
them. 

The present agitation against railways had its in- 
ception some years ago in an effort made by a little 
coterie of grain brokers in Milwaukee, of which Mr. 
Ki. P. Bacon was a leading factor, to secure for Mil- 
waukee, advantages as a grain market which it does 
not naturally possess, and which it was not within the 
power of the railways to provide for it, even had they 


46 UNFAIR RAILWAY AGITATION. 


been disposed to do so. The recent complaint of New 
York shippers against the grain rates for export at 
Baltimore and Philadelphia was the result of dissatis- 
faction with the adjustment of rates which secured to 
the two latter cities the equality with New York in 
the export trade, which the natural facilities of those 
ports afforded. Substantially every discontent con- 
cerning the adjustment of railway rates which now 
exists can be traced, not to the effort of the railways 
to confer artificial commercial advantages upon com- 
munities or localities, but to the demand of some com- 
munity or locality for artificial commercial advantages 
to which it is neither in nature nor in reason entitled. 
If those who are misled by the sophistries of the poli- 
ticians would but for a moment pause and think the 
question out for themselves, they would see how pre- 
posterous are these claims of favoritism and discrim- 
ination. It is not pretended that the railways refuse 
to haul for a portion of their customers, but it is con- 
tended that in various ways they give advantages and 
preferences to certain favored shippers. If this were 
true, would it not be obvious that if it could do so, the 
railway would be more interested in fostering the 
business of those to whom preference and advantages 
are not given, for the simple and selfish reason that 
such business would yield a greater revenue? As ab- 
surd as the assertion is, it is its own best answer. It 
has never been explained why a railway company 
should be interested in building up the business of one 
community as against another, when its revenues de- 
pend upon the business of both. There is no aestheti- 
cism in the railway business which makes potatoes 


A REPLY TO GOVERNOR LA FOLLETTE. 47 


pleasanter to haul from one station than from an- 
other. It is immaterial to the railway company where 
its freight comes from, so long as it comes. If the 
public would but stop to think a moment, it would 
readily be seen that this theory of favoritism and dis- 
crimination, in whatever direction it is worked out, 
constitutes a system of commercial suicide, of which 
the railways of this country have not yet been guilty. 
It is not intended to assert that preferences and dis- 
criminations have not existed. But it is intended to 
show that they constitute an evil from which the rail- 
way is the most direct and severe sufferer, and that it 
is one from which the railways welcome relief. In 
other words, is 1t reasonable to suppose that the rail- 
ways are so anxious to give away their money that 
they would oppose the enforcement of a law that would 
prevent it? 

In the hands of a political commission, however, 
having no interest in the commercial success of the 
carriers, and having no responsibility to the owners 
of the railways, political considerations would nat- 
urally become paramount, and with power of pitting 
section against section, town against town, and class 
against class, political favoritism would inevitably 
spring up and the interests of favored sections be 
given undue consideration in return for political pre- 
ferment. A striking illustration of the probability of 
this evil is shown in the Galveston and Houston dif- 
ferentials, which the railway commission of the State 
of Texas, the only commission that exercises full 
power to make rates, maintains for the commercial 


48 UNFAIR RAILWAY AGITATION. 


benefit of those communities as against the mercantile . 3 
welfare of the rest of the state. 


Ramuway CONSOLIDATION. 


Governor LaF ollette devotes some attention in 
closing his presentation of the question of railway 
regulation, to the consolidation of railway interests . 
into what he states to be practically 90 per cent. of 
the railway mileage of the country under substan- 
tially one control. The common experience of every 
business man in the United States refutes this state- 
ment. Competition in whatever form it may express 
itself is the opposing efforts of different people to 
secure the same business. In order to secure business 
in preference to others, there must be some induce- 
ment offered. In the railway business, as the law ex- 
ists today, this inducement cannot consist in any con- 
cessions of rate unless effected by published modifica- 
tions of tariff open to all alike. There is going on 
today, just as there always has been, the constant 
modification of published tariffs in order to secure 
business in competition. One hundred and thirty rail- 
roads are classified by Governor LaFollette as Van- 
derbilt lines. It is presumed that in this classifica- 
tion is included, for instance, the Nickel Plate, the 
Lake Shore, and the Michigan Central. There is no 
one whose business produces tonnage available for 
all these roads, who does not know that the competi- 
tion for business between them is as keen as it ever 
has been, and as sharp as it is between any one of 
them and the Pennsylvania Lines. While the financial 
owners of some railways have undoubtedly become 


ALREPLUY, TO GOVERNOR DR AYP ODD ETT B49 


financially interested in other railways, it is not true 
that there has been any general consolidation of the 
management or operation. As long as the manage- 
ment remains separate, all wholesome competition 
which affects the course of rates will remain in force 
as thoroughly as though the financial interests of the 
railways were entirely distinct. The reason for this 
is that the competition between the different lines, 
while it has a tendency to lower rates, has an actual 
tendency to increase tonnage, which more than offsets 
any reduction in rates when the net results are com- 
puted. Tonnage is the important factor in railway 
operation, and so long as separate management exists, 
and so long as more money can be made out of a larger 
volume of tonnage, nothing can eliminate the: element 
of active and actual competition to secure that ton- 
nage. 


OPERATION OF Ratnways Cannot Br ConsoLiDATED. 


Further than this, no matter how the railways of 
this country may be owned, they must always be sepa- 
rately operated. The statutes of nearly all the states 
prohibit parallel or competing lines from econsoli- 
dating, and the Sherman anti-trust law, as construed 
by the Supreme Court of the United States, forbids 
any agreement between railways which would destroy 
competition or operate in restraint of trade. It is 
legally impossible, as the law in this country stands 
today, for the different railways to so combine as to 
prevent competition or restrain the natural course of 
commerce. 

But after all, the most potent factor in railway com- 


50 UNFAIR RAILWAY (AGITATION: 


petition has always been, and always will be the ne- 
eessity of providing markets for the constantly in- 
creasing production and consumption of the country. 
The widening of market area will always of itself pro- 
duce a lowering of rates, and as long as the railways 
-can make more money out of increasing tonnage, they 
will continue to lower the rate in response to the de- 
mands of increasing business. No combination of 
railways could stop this downward tendency of tariffs 
without immediately clogging the channels of business 
upon which the prosperity of the transportation com- 
panies depends. 

It is not true that 90 per cent. of the railway mileage 
of the country is subject to one control. It is not 
true that 90 per cent. of the railway mileage of the 
country is subject to the control of six interests. No 
such control of transportation, as is stated by Gov- 
ernor LaFollette exists today, nor is there any proba- 
bility that it ever will exist. | 


Wuat Can Be Expsctep From Poritican RatEr 
MAKING? 


What benefits, then, may reasonably be expected 
from ‘‘fair railway regulation’’ as advocated by Gov- 
ernor LaF ollette. 

Certainly, we cannot expect to secure cheaper trans- 
portation. We now have in the United States the 
cheapest transportation in the world, and at rates that 
have steadily declined for years, and which there is 
no reason to expect wil! not continue to decline as they 
always have done. 

Certainly we cannot expect to give any stronger 


A REPLY TO GOVERNOR LA FOLLETTE. 61 


guaranty that the highways of commerce shall be open 
to all on any more equal terms than they are, for we 
have the assurance of the Interstate Commerce Com- 
mission itself, as well as the experience of the busi- 
ness world, in support of the statement that the pres- 
ent law, if enforced, is ample to prevent the evils of 
rebates and preferential rates. 

There is no reason to expect that we should be able 
to secure any fairer adjustment of rates as between 
themselves from a political commission than we do 
from the railways, for the railways have back of their 
adjustment of the rates the selfish interest of their 
own prosperity, which depends upon the prosperity of 
all the business on their lines, while a political com- 
mission if given this power would have nothing at 
stake but the political success of the influences which 
placed it in office. 

If it were proposed to delegate the right of Con- 
gress in levying a protective tariff to a political com- 
mission, and give that commission authority to make 
such adjustments of the schedules as the interests of 
different communities and different people might from 
time to time require, the dangerous power which such 
a privilege would confer, would be obvious. To place 
the power to make railway rates in the hands of a 
political commission would result in more disaster to 
the country and its commerce, many times over, than 
would the politicalization of the tariff. It would con- 
fer a power over the commerce of this country which 
no railway has ever possessed, and which a complete 
control of all the railways by one owner could not at- 
tain, for the railway, even if it were an absolute 
monopoly, would still be restrained by the law of self 


52 UNFATR (RATL WAY VAGITATION, 


preservation, while the political commission, respon- 
sible to no one but the political power which created 
it, would be at liberty to exercise such sectional favor- 
itism as its own political exigencies might dictate. If 
the power to fix railway rates is ever vested in a 
political commission, and the commerce of this coun- 
try thus plunged into the direct channels of political 
warfare, we shall see in the United States a section- 
alism beside which all the differences of our past his- 
tory will seem to have been mere passing pleasantries, 
and the devastations of war itself will be prosperous 
productiveness in comparison. The commercial in- 
terests of this country which are from time to time 
assailed by the political nature of our protective policy 
have had enough experience with business in politics. 
It is to be hoped that the hand of the politician can 
be stayed long enough for the people to get their sober 
second thought, and that in this recurrence of our 
periodical attack of national hysteria on economic sub- 
jects, the ambitions of modern Caesars will not be per- 
mitted to convert this nation into a second Rome. 
Chicago, April 3, 1905. 
Burton Hanson. 


Pe Wty: 
Tet 


wisi 


